US reveals more positive data; China's PMIs concerning, steel industry struggles; Japan industry jumps; Canberra reveals monster May surplus; UST 10yr 3.84%; gold and oil up; NZ$1 = 61.4 USc; TWI-5 = 69.8

Here's our summary of key economic events overnight that affect New Zealand, with news the Australian Government is rolling in unexpectedly high and surging tax revenues.

But first, the US released its May PCE inflation result overnight and it was another small dip, up +3.8% from a year ago and lower than the April +4.3% rise. If there is a hesitation it is that the pace was above that in the April-to-May period. But markets cheered the result and equities surged. But bond markets aren't signaling they think the Fed will relax just yet, especially as it signaled two more rate hikes at least in 2023. They have a July 26 +25 bps fully priced in now.

We should also note that while personal incomes keep growing at an inflation-equalling pace and better than expected, consumer spending did dip in May according to this update and that was less than expected.

Meanwhile heartland manufacturing in the Midwest Chicago region is suffering with their PMI retreating faster than expected. It isn't a positive signal. It did come in in June less-worse than the May but the recovery was timid and much less than anticipated.

However, the final June University of Michigan survey of consumer sentiment is rising and by more than expected, capping four straight months of gains. But to be fair it is still well below its long term average of positivity. It looks good because the base of a year ago was so weak.

The first estimates of the US non-farm payrolls are coming through and the expectation is that they will rise another +223,000 to keep the labour force-led expansion going. But remember these forecasts greatly underestimated the gains in May which came in at +339,000.

A Canadian business outlook survey run by their central bank found businesses reporting that their indicators of domestic demand have moved up compared with a year ago as uncertainty about the path of future interest rates and concerns of a recession fade.

China released its official PMIs for June yesterday and they make concerning reading. Factory activity stayed in a mild contraction but it is now three months in a row it has contracted. Services is expanding but at their slowest pace in six months. Still, neither is severe, only lackluster. The Caixin versions will come on Monday. The private Caixin versions have recently tended to reflect slightly better results over the past few months.

Although some say it is only codifying existing practice, the new 'national security' laws that came into effect in China today are so broad that even your own company's data could be considered a state secret and you could be arrested and prosecuted for distributing it outside China. The wording is very ambiguous and interpretation will be decided by officials on a case-by-case basis, not in their courts. It is a move that is likely to suppress much foreign investment into China. Here is one summary of the new law and how it sits with other Chinese measures in place. Here is what the official Chinese media says. The contrasts are stark. If you do business in China, go in with your eyes open.

The Chinese yuan is now at its weakest since the end of 2022 and if it beaches that, it will be its weakest since 2007.

Japanese industrial production which has been soft-to-flat for the prior six months, too a sharp turn higher in May, confirming other signals that Japan seems to have turned a corner. Some of that might have been inventory build, but most components seem to be going in the right way.

Inflation in the EU came in at 5.5% in June, down from 6.1% in May, so they are on the right track even if more progress needs to be seen by the ECB before they ease back on their policy interest rate hikes. Food prices are the main pressure point now. Energy prices are the key restraining factor.

But German retail sales can't hold on to inflation, with a shrinkage on a volume/real basis. But at least their labour market is still hanging in there (just).

In Australia, as we signaled yesterday, the latest Commonwealth government accounts are revealing surging surpluses. They reported a monster +AU$24 bln surplus in May alone. Their financial year ends in June. Now they expect the full year surplus to be far bigger than the +AU$4.2 billion forecast contained in the budget seven weeks ago. Probably an all-time record. And big surpluses are now projected for the 2023/24 year as well. It is raining revenue for the Australian government as both company and personal taxes rose to new highs.

But it may not last. China’s leading steel makers warned on Friday that their industry faces a challenging second half as demand disappoints, profitability lags and pressure to cut costs mounts in the world’s top producer. Most of their steel is made from Australian and Brazilian iron ore.

The UST 10yr yield will start today up sharply at 3.84% and settling back -1 bp from yesterday. A week ago it was at 3.74% so a net +8 bps rise since then. Their key 2-10 yield curve inversion is a little steeper however at -105 bps. Their 1-5 curve is little-changed at -129 bps. But their 3 mth-10yr curve is more inverted, now by -138 bps. The Australian 10 year bond yield is now at 4.00% and unchanged. The China 10 year bond rate is down -2 bps at 2.69%. And the NZ Government 10 year bond rate is up another +4 bps at 4.68% and its highest since early March 2023. Recall a week ago it was at 4.60%.

We should also note that LIBOR as a maintained benchmark formally ends today. In the bond world it is a big deal and a benchmark very hard to shake.

Wall Street closed its Friday trade with a +1.2% gain on the S&P500 to lock in a weekly rise of +2.4% and an impressive monthly jump of +5.4%. Overnight, European markets all rose solidly too on the day. London ended June with a +0.6% monthly blip. Paris was up +3.7% for the month, and Frankfurt managed a +1.9% monthly gain. Yesterday, Tokyo ended its Friday trade little changed on the day bit up +1.7% for the week and up +6.6% for the month. Hong Kong was also little-changed in its Friday session to end the week up +0.4%, and +3.8% for the month. Shanghai was up +0.6% yesterday for a +0.8% weekly rise. But that was no gain for the month. The ASX200 ended its Friday session unchanged to book a weekly rise of +1.5% and a monthly rise of a lesser +1.3%. And the NZX50 booked no monthly gain, saved because yesterday it was up +0.9% and for the week it was up +1.4% so it would have been embarrassing without the late recovery.

The price of gold will start today at US$1920/oz and that is back up +US$12 from yesterday although exactly where it was a week ago.

And oil prices are up +US$1 from yesterday to now be just over US$70.50/bbl in the US. The international Brent price is now just under US$75.50/bbl. In a week these are up +US$1.50.

The Kiwi dollar starts today at 61.4 USc and up +¾c from yesterday. But that makes it unchanged for the week. Against the Aussie we have risen to 92.1 AUc and a +½c gain from yesterday although little-changed for the week. Against the euro we are up similarly at 56.2 euro cents. That means the TWI-5 has risen +60 bps to 69.8 but exactly where we were a week ago - although up +80 bps for the month.

The bitcoin price has slipped slightly from this time yesterday and now is at US$30,316 which is a -0.7% dip and it finished the month above NZ$50,000 for the first time since April 2022. Volatility over the past 24 hours has grown to a high level at just over +/- 3.0%.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».